• As equity markets reached another all-time high this week, investor sentiment shows signs of continued momentum.22 Domestic stock prices have been supported recently by expectations for continued slow, but steady, economic growth in the U.S., an improving macro outlook within the energy markets, and optimism surrounding the prospects for tax reform late this year or early next.23
  • According to an October 2017 University of Michigan survey, investors expect the good times to continue into next year.24
  • Approximately 65% of investors surveyed in the University of Michigan’s latest poll, which measures the percentage of investors that expect stock market prices to increase in the next year, expect stocks to generate another year of positive returns in 2018.24 October’s figure brings investor expectations for positive next-year returns to a nearly two-decade high.24
  • Indeed, recent momentum could be a tailwind for continued market appreciation in 2018. But while sentiment remains supportive, equities could also face potential headwinds next year. The S&P 500 Index has climbed more than 16% year to date, and equity valuations currently appear to be stretched based on a variety of measures.25
  • To this end, it may also be a reasonable interpretation for investors to read October’s nearly two-decade high sentiment figure as a potential warning sign that more volatile conditions could lie ahead, as was the case in mid-2007.

1 Federal Reserve Bank of St. Louis, http://bit.ly/2d3pN5b.
2 Bank of America Merrill Lynch U.S. High Yield Master II Index.
3 Bank of America Merrill Lynch U.S. High Yield Energy Index.
4 S&P Leveraged Commentary and Data Weekly Wrap, October 19, 2017.
5 Thomson Reuters Lipper.
6 Bank of America Merrill Lynch U.S. High Yield Metals and Mining Index.
7 Credit Suisse Leveraged Loan Index.
8 Federal Reserve Bank of St. Louis, http://bit.ly/29ecBfp.
9 Bank of America Merrill Lynch U.S. 10-year Treasury Index.
10 Bank of America Merrill Lynch U.S. Corporate Master Index.
11 CNBC, http://cnb.cx/2yzg3gN.
12 Platts, http://bit.ly/2hTvyGC.
13 U.S. Energy Information Administration, http://bit.ly/1V2gPZQ.
14 Federal Reserve Bank of St. Louis, http://bit.ly/292Tgue.
15 Credit Suisse Leveraged Loan Index (energy component).
16 Alerian, http://bit.ly/2yKWiRz.
17 Standard & Poor’s, http://bit.ly/2ydsLD0.
18 Bloomberg, https://bloom.bg/2yBEZ5K.
19 Bloomberg, based on consensus analyst earnings expectations over the next 12 months.
20 Bloomberg, https://bloom.bg/2xSxVEO.
21 Federal Reserve Bank of St. Louis, http://bit.ly/2oMWaP2.
22 Federal Reserve Bank of St. Louis, http://bit.ly/2jZjDYt.
23 Federal Reserve Bank of Atlanta, http://bit.ly/1IYTEct.
24 Bloomberg as of October 19, 2017. Based on data from the University of Michigan Mean Probability of an Increase in Stock Market Prices in the Next Year.
25 Yale University, U.S. Stock Markets 1871–Present and CAPE Ratio is one measure among many by which stock market valuations appear to be above their long-term average, http://bit.ly/1qlZ47U.


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